Alon Weinberg is a Director at Dell Technologies Capital and was also formerly a Principal at Viola Ventures. This post was written during his tenure at Viola (2015-2017) together with guest contributor Irit Kahan, Principal at Deutsche Telekom Capital Partners.

Virtual and Augmented Reality are still in their infancy in terms of consumer adoption, and depending on who you ask – whether it’s VCs, analysts, skeptics, visionaries, tech enthusiasts, sociologists and so on – you’ll get different answers as to how brightly the future is shining for the VR-AR-related markets. So how will the now much-shared picture of Mark Zuckerberg at last month’s Mobile World Congress 2016 be perceived five years from now: As a defining event, or a reminder of unjustified hype? And how is Israel faring in midst of all of this VR-AR innovation?

Mark Zuckerberg at Mobile World Congress 2016

VCs and analysts have been trying to get a sense of the maturity of the Virtual Reality (VR) and Augmented reality (AR) market in terms of technology, cost and use cases in order to estimate its growth and total addressable market. Skeptics compare VR to a new gaming platform, suggesting that in the short run it will be relevant mainly to short experiences and predicting that AR will add mainly incremental features to existing applications. On the other hand, visionaries believe that VR and AR will revolutionize the way we interact with computers and see it as the next emerging computing platforms that will both disrupt various markets and create new markets. Goldman Sachs estimates that the size of the overall VR-AR market will be anywhere between $23bn and $183bn by 2025 and the huge range reflects the uncertainty around the uptake and adoption.

VR will not only be facing a critical year in 2016, but also a moment of truth; it is going to be the first year of actual product launches and the first time that existing devices will attempt to make it into the consumers’ living room. The optimistic forecast is that more than 5 million units of high end VRs (PC VR and Console VR) will be shipped (various estimates predict 1-2 million Oculus Rift, 1.5-3 million PlayStation PS VR and 1-2 million HTC Vive) while shipments for mobile VR are forecasted at tens of millions of units. More important than the actual number of units shipped will be the insights that will be gained into the usability across the different platforms and applications.

It will take more time for the key AR platforms to mature and we hope to discover some “treasures” once the fog lifts.Microsoft Hololens and Google Tango are expected to mature first followed by Magic Leap and potentially Apple (for example leveraging the Metaio acquisition).

The Israeli Landscape

Since 2014, VC investments in VR-AR have mounted to $2.56 billion globally (including the $1.4 billion investment in Magic Leap and excluding the $2+ billion Oculus deal). Over the same period we estimate that about $170 million was invested in Israel in the area of VR-AR (although it could be closer to around $120 million if a more strict definition of VR-AR is followed).

Analyzing the Israeli ecosystem, we believe it is still very nascent and has a lot of room for growth. Israel has great talent in this area, and a strong adjacent video and computer vision ecosystem (led by companies such as Mobileye, Elbit and Verint) that can contribute to VR-AR innovation.

It is clear from the map below created jointly by Viola Ventures (formerly Carmel) and Deutsche Telekom Capital Partners that when it comes to VR-AR, Israel is strong in hardware and natural user interfaces (gesture control, eye tracking, etc.), which accounts for more than two third of the total fundraising volume so far. We believe that additional sectors (development platforms, vertical solutions, and healthcare, for example) will develop as well and it will be interesting to see whether Israel can leverage its strong ad-tech ecosystem and emerging gaming ecosystem in the areas of VR-AR too.

The Israeli VR-AR landscape will most likely change a lot in the coming years as the industry evolves. In fact, we already see dozens of interesting startups under the radar that might join the ecosystem (and the map) soon. Some of the big players (like Facebook, Apple, Intel, Microsoft and Baidu) have already made purchases and investments in the local VR-AR ecosystem, with the latest being Intel’s acquisition of Replay Technologies (a former portfolio company of Deutsche Telekom Capital Partners). We expect this trend to continue.

Israeli Virtual Reality and Augmented Reality Startup Map, created by Irit Kahan (Deutsche Telekom Capital Partners) and Alon Weinberg (Viola Ventures). The map includes only companies that have raised a seed investment of around $500k or more. Feel free toview and download from SlideShare

To truly understand virtual reality, you have to try it

Most virtual reality skeptics seem to be swayed after seeing some impressive demos, so before you form an opinion about it, you should really see a few demos for yourself. At a recent Israeli Virtual Reality (IVR) meetup hosted by Viola Ventures and Autodesk, the “experience” of VR was one of the more impassioned topics of discussion.

One aspect, for example, was that our grandparents have only a few black and white photos to remember their childhood by, but if they only had a video recorder all those years ago, it would have been priceless. Our kids, in contrast, will be able to see and share plenty of childhood memories via video when they grow up, but what if in the future they could immerse themselves into a capsule of time and experience their birthdays and other childhood memories in 4k, 3D 360 video using VR?

Much like the boost of emotion afforded by video over black and white photos, virtual reality will offer us experiences that are far more emotional than the ones we’ve been used to until now.